The Canadian dollar weakened against the greenback on Tuesday as oil prices fell and domestic data showed factory sales dropping for the third straight month, with the decline for the loonie coming one day before a Bank of Canada interest rate decision.
At 2:57 p.m. (1957 GMT), the Canadian dollar was trading 0.1 per cent lower at 1.3072 to the greenback, or 76.50 U.S. cents. The currency traded in a range of 1.3045 to 1.3077.
“It’s purely because oil markets are on the back foot,” said Simon Harvey, FX market analyst for Monex Europe and Monex Canada.
U.S. crude oil futures settled 0.3 per cent lower at $58.34 a barrel on expectations that a well-supplied global market would be able to absorb disruptions that have cut Libya’s crude production to a trickle. Oil is one of Canada’s major exports.
Canadian factory sales decreased by 0.6 per cent in November from October, affected by rail transportation disruptions. That was a bigger drop than the 0.3 per cent decline that analysts had forecast, although there was an upward revision to the prior month.
“Transitory factors aside, the second half of 2019 wasn’t kind to Canadian manufacturers,” Josh Nye, a senior economist at RBC Economics, said in a note.
The manufacturing data could support a view that Canada’s economic growth slowed in the fourth quarter.
The Bank of Canada is due to update its outlook for the economy on Wednesday, when it is expected to leave its benchmark interest rate on hold at 1.75 per cent.
Earlier this month, Bank of Canada Governor Stephen Poloz said there was still plenty of uncertainty about what a Phase 1 trade deal between the United States and China could mean for Canadian exports. Canada sends about 75 per cent of its exports to the United States.
“The key takeaway tomorrow is how Poloz is viewing the Phase 1 deal and what kind of implications that holds for policy,” Harvey said.
The Canadian government will unveil legislation to ratify the United States-Mexico-Canada trade deal on Jan. 29, Prime Minister Justin Trudeau said on Tuesday.
Canadian government bond prices were higher across a flatter yield curve in sympathy with U.S. Treasuries. The two-year rose 6 Canadian cents to yield 1.620 per cent and the 10-year was up 51 Canadian cents to yield 1.509 per cent.
The 10-year yield touched its lowest intraday level since Dec. 4 at 1.497 per cent.
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